Betting on Volatility

Mark Newton, CMT, founder & president of Newton Advisors, foresees a further rise in market volatility. He notes the recent action in the VIX, highlights key levels to watch for, and determines how to make the trade, in this interview with Justine Underhill. Filmed on January 17, 2019.

Comments

I don’t like buying the VIX unless you use a call spread to be honest. timing a move like last February is not easy. In that case a better hedge would be puts on SPY or a correlated asset to your portfolio. Thinking here is if implied volatility is “low” then the options should be relatively cheap relative to itself historically. I think you get a better bang for your buck and can play 2-3 month expirations cheaper than trying to roll futures every month or roll decaying options.
Other thought process is to buy products that increase in times of volatility. And start to figure out “where” this volatility is going to come from. IE , credit. Find a way to express credit vol increasing or perhaps gold and miners increasing in a volatility event. I think if your worldview is shit will hit the fan it wouldn’t hurt to own miners (GDX / GDXJ) or be long options of these. HYG puts - cheap on the rally. Idk there’s a 1000 ways to express volatility increasing view just don’t chase the stuff where it’s more difficult to efficient hold the view.
Best of luck

http://www.cboe.com
http://vixcentral.com
I play UVXY 1.5X VIX futures ETF (used to be 2X before last Febs volpacalipse and we got robbed over night) via options and stock.
Keep an eye on the curve.
Good way to play the vol and hedge out your longs thru spreads, etc. not something you can set and forget though.
Good time to be a trader.
Good luck

There are many possible winning trades – shorts and longs, as the SPX reacts to US/World financial events. But a 2% projected increase in corporate profits for 2019 is not promising for long-term markets. The US consumers, 70% of the US GDP, are driving the corporate margins down by using the internet to find the lowest prices - resulting in lower corporate margins. Corporations are spending as much as possible to increase internet marketing while also spending as much as possible for internet security. The China/US trade war, the uncertainty with Brexit, Yellow Shirts, Ukraine, Syria, etc. are well known. The dysfunction of the US government shutdown to pander to both the far left and the far right. The realignment of NATO. The huge sovereign, corporate, and personal debt crisis. How can the market handle all these disruptions? Some smart/lucky traders can trade this market well, I will stay out. As IMO the only winner in all this confusion is the rise of the power of Russia, but they will not fare well financially either. Protect your capital and use some wisely with friends, family and good times. DLS

Respectfully, I would say the VIX specifically, and Implied Volatility in general, should NOT be studied via Technical Analysis. While some may consider Volatility to be an "asset", it is actually more of a risk vector.
Moreover, it is a path dependent risk, rather than a direct risk. Think of it as a ride in a car; here one is not measuring the destination, but rather the road one takes to arrive. With respect to this video, charts can be informative about the final destination, but offers little value about predicting the path. Certainly there is a short-term correlation between asset level and volatility, but that soon washes out as volatility normalizes to the underlying asset new level.
Finally, as noted by a prior comment, the VIX is not the same as the futures contracts (UX1 or UX2), so if you insist upon charting (which I urge against), use the continuous UX2.
For more on this topic: http://www.convexitymaven.com/images/Convexity_Maven_-_A_Guide_for_the_Perplexed.pdf

Volatility is relative. Technical analysis is only valuable if you have CTAs and algos that base trading on volatility as an input. It’s more risk ranges than moving average. The VIX itself is heavily weighted on gamma , you can see this is the ferocity of the positive convexity it illustrates in times of “stress”.

FYI you can't "buy the VIX" at 18. You buy futures on the VIX which expire every month. Those future rise less than the VIX itself in case of an equity crash, so you probably won't be able to realise the 9 to 12 profit target either.
Same thing if you buy options on the VIX, you actually buy option on futures on the VIX.
Slightly missleading trading idea that can not be implemented as exposed in this video.
Funny thing is… I liked the idea ;-)

I already had a long position in $20 VIX Calls to Feb 12 before watching this video (great minds or fools - not sure which). They worked well on yesterday’s sell-off so I’m not convinced of the need to avoid trading these instruments based on the (credible) observations above.

It really depends (although not entirely) on whether the VIX futures curve is in contango or backwardation. If it’s in backwardation this means the curve is sloping downwards (i.e. spot price is higher than forward price) so that long positions out the curve benefit from a ‘pull’ higher as time passes. Opposite for contango - which is why you must follow this curve to answer your question.